Simple interest is calculated only on your original principal amount, and stays the same every year — if you invest ₹1,00,000 at 10% simple interest, you earn exactly ₹10,000 every single year, regardless of how many years have passed. Compound interest, on the other hand, is calculated on your principal plus any interest already earned, so your interest amount itself grows larger each year.
This difference might seem small initially, but it becomes substantial over longer periods — ₹1,00,000 at 10% simple interest becomes ₹2,00,000 after 10 years, while the same amount at 10% compound interest becomes roughly ₹2,59,000. This is exactly why most long-term investments, like mutual funds, PPF, and FDs, use compounding, and why starting to invest earlier gives compounding more time to meaningfully work in your favour.